August 31, 2011

Bengal becomes biggest borrower

THE TELEGRAPH, Issue Date: Wednesday, July 27, 2011


July 26: Bengal has become the biggest borrower among all states in the country, both the current and previous governments going neck and neck in raising loans in the first four months of this financial year.

Data available with the RBI suggest that the new Trinamul Congress-led government has raised Rs 5,000 crore in the two months since Mamata Banerjee took over as chief minister of the cash-strapped state on May 20.

The coalition government’s borrowing blitz began on June 7 when it raised Rs 3,000 crore and followed that up with two tranches of Rs 1,000 crore each on July 5 and 19. These loans came on top of borrowings worth Rs 5,173 crore by the Left Front government during its final months in office.

The combined effect of the borrowings by the two governments is that Bengal has now earned the dubious distinction of becoming the biggest borrower among the states. Last year, Bengal was ranked sixth among states in terms of annual borrowings.

Bengal’s borrowings now stand at Rs 10,173 crore — almost 70 per cent higher than last year’s level of Rs 6,000 crore during the same period. What’s worse is that its borrowings in the first four months of the current financial year at Rs 10,173 crore is 7 per cent higher than the Rs 9,500 crore it had borrowed in the 12 months ended March 31 this year.

State finance minister Amit Mitra declined comment on the borrowing programme of the state government.

“The borrowing spree will compound the problems that the government is facing. The government will have to find ways to increase its own revenue,” said a senior state government official on condition of anonymity.

Although the Centre has increased the plan budget for the state from Rs 17,985 crore to Rs 22,214 crore and promised to give more funds to Bengal, it has also suggested that the state government find ways to shore up its revenue collections.

While the state waits for Delhi to loosen its purse-strings, the question that is being asked at Writers’ is why does the government need to borrow so much? Is it to pay salaries, pension and interest on outstanding loans?

The available figures, however, don’t support this hypothesis. The monthly outgo on salaries, pension and interest on outstanding loans is around Rs 4,000 crore while the revenue earnings per month are around Rs 5,500 crore.

“A new government has to deliver on its promises and a lot of new projects are being taken up. As most of them have been announced without obtaining consent from the finance department, borrowing is the only option,” said a state government official.

Some of the big announcements by the chief minister include laying embankments in Aila-affected areas, rural healthcare upgradation, creation of 36 primary health care centres in Jungle Mahal, drinking water projects in Purulia, West Midnapore and Bankura, jobs for 10,000 tribal young men and women as part of a special police force in Jungle Mahal and the creation of 46,000 teachers’ posts.

“The state government doesn’t have the funds to roll out all these projects at one go and that’s why there is a need to borrow,” said an official. Borrowing by a state government is not a sin and Bengal can borrow up to Rs 17,000 crore a year.

But excessive borrowing has its ramifications. The borrowings will put a greater strain on Bengal’s finances since the interest payout will increase with yields (the rate of interest that the bond holders earn) climbing by 44 basis points from around 8.17 per cent last year to around 8.61 per cent at present.

The rising yields appear to have deterred the other states from accessing the RBI loan auction window. That’s the reason why Bengal’s borrowings account for almost 28 per cent of the total state government borrowings of Rs 37,023 crore till date.

Uttar Pradesh — the second highest borrower this year — has raised Rs 5,000 crore till date, less than half of what Bengal has garnered in the four-month period.

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